Fin431x (Ch 20&21) 1 Credit Rating and Credit Risk Modeling 1. Major components of corporate bond credit analysis 2. Business risk 3. Corporate Governance.

Slides:



Advertisements
Similar presentations
Bond Covenants. 2 Key risk areas 3 Key risk areas in high-yield bonds Today we’ll will cover 4 areas in depth with obvious ratings implications »1. Distributions.
Advertisements

(using financial statements)
PERFORMANCE BASED LENDING HOW MUCH MONEY IS THE BORROWER GOING TO NEED? TRY NOT TO GET INTO A POSITION WHERE ADDITIONAL MONEY IS NEEDED BEYOND THE ORIGINAL.
Analyzing Financial Statements
Fall-02 Investments Zvi Wiener tel: Financial Statement Analysis BKM.
Chapter 4. We will want to answer questions about the firm’s n Liquidity n Efficient use of Assets n Leverage (financing) n Profitability.
BAGIAN 3 The Analysis of Financial Statements. 2(C) 2004 Prentice Hall, Inc. The Analysis of Financial Statements This chapter will develop tools and.
Chapter 16 Financing. Learning Objectives  Identify the common methods of debt financing for firms.  Identify the common methods of equity financing.
Long-Term Liabilities - Chapter 10 Financial & Managerial Accounting, 8th Edition by Needles, Powers, Crosson.
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Financial Statement Analysis CHAPTER 14.
Financial Performance Measurement
Chapter 3 Finance Theory and Real Estate © OnCourse Learning.
Financial Statement Analysis
FI3300 Corporation Finance Spring Semester 2010 Dr. Isabel Tkatch Assistant Professor of Finance 1.
1 Analysis of Financial Statements Timothy R. Mayes, Ph.D. FIN 3300: Chapter 3.
Ch.13 Financial Statement Analysis. Stockholders Financial Statement Analysis Creditors Will I be paid? How good is our investment?
Module 3: Financial Statement Analysis ACG 2071 Fall 2007 Created by M. Mari.
Chapter McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Review of Accounting 2.
Financial Statement Analysis
Surviving Changing Markets Mission Impossible?. Mission Impossible.
Financial Statement Analysis
© 2009 Cengage Learning/South-Western Financial Statement and Cash Flow Analysis Chapter 2.
Chapter 2. Financial Statements And Cash Flow Analysis Professor Thomson Finance 3014.
PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA CHAPTER.
Financial Management Chapter 18. Financial Management Chapter 18.
Key Financial Ratios 1. Profitability Ratios Key ratios – Return on shareholders’ equity (ROE) – Return on assets (ROA) – Return on sales (ROS) – Gross.
EVALUATING FINANCIAL PERFORMANCE
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Intro to Financial Management Evaluating a Firm’s Financial Performance.
Chapter 9 Financial Statement Analysis. Learning Objectives After studying this chapter, you should be able to…  Describe basic financial statement analytical.
Previous Lecture Purpose of Analysis; Financial statement analysis helps users make better decisions Financial Statements Are Designed for Analysis Tools.
Corporate Debt Instruments and Credit Analysis Chapter 20 All Pages.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Analyzing Financial Statements Chapter 14.
Chapter 14.  To make informed decisions about a company  Generally based on comparative financial data ◦ From one year to the next ◦ With a competing.
Chapter 10 Bond Prices and Yields. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Bond Characteristics Face or __________.
Unit 5. The purpose of Unit 5 is to define the four basic financial statements and discuss the information presented on each.
©2007, The McGraw-Hill Companies, All Rights Reserved 20-1 McGraw-Hill/Irwin Chapter Twenty Managing Credit Risk on the Balance Sheet.
Finance Chapter 3 Analysis of financial statements.
Global Edition Chapter 20 Corporate Bond Credit Analysis.
Financial Statement Analysis. Common Financial Statements  Balance Sheet  Income Statement  Statement of Retained Earnings  Statement of Cash Flows.
CH.10 CREDIT ANALYSIS AND DISTRESS PREDICTION
Analyzing Financial Statements Chapter 13 McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, Inc.
V. STOCKS. L. RATIO ANALYSIS 1.Ratios That Measure Liquidity (the firm’s ability to convert assets into cash) a.Current Ratio = Current Assets Current.
1 Chapter 03 Analyzing Financial Statements McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19 Financial Statement Analysis.
Analyzing Financial Statements
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
© 2009 Cengage Learning/South-Western Financial Statement and Cash Flow Analysis Chapter 2.
Chapter Capital Structure Decisions u Capital structure decisions when the participants are well informed: u Managers can look to the market for.
Credit Analysis Chapter 7 Robinson, Munter, Grant.
Copyright © 2007 Prentice-Hall. All rights reserved 1 Financial Statement Analysis Chapter 13.
Chapter Nine Financial Statement Analysis © 2015 McGraw-Hill Education.
McGraw-Hill /Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved Chapter Twenty-one Managing Risk on the Balance Sheet.
Chapter 17 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.
Financial Markets Chapter 11 Section 2 Bonds and Other Financial Assets.
McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Financial Statement Analysis CHAPTER 13.
Tyler Mumbleau Sunday January 29, 2017
Chapter 3 - Evaluating a Firm’s Financial Performance
Financial Statement Analysis
Financial Statement Analysis
Financial Statement Analysis
Financial Statement Analysis
Analyze financial indicators and ratios to make business decisions.
Section 2: Ratios Measuring Financial Strength
Financial Statement Analysis
Corporate Debt & Credit Risk
Analysis of Financial Statements
Analyze financial indicators and ratios to make business decisions.
Chapter 15 Financial Statement Analysis Student Version
Credit risk analysis & debt capacity
Presentation transcript:

Fin431x (Ch 20&21) 1 Credit Rating and Credit Risk Modeling 1. Major components of corporate bond credit analysis 2. Business risk 3. Corporate Governance Risk 4. Financial Risks 5. Alternative credit risk models

Fin431x (Ch 20&21) 2 Overview of Credit Analysis Analysis of Covenant Analysis of Collateral Analysis of Issuer’s Ability to Pay Business risk Corporate governance risk Financial risk

Fin431x (Ch 20&21) 3 Analysis of Business Risk Business risk is the risk associated with operating cash flows, such as industry trends, operating environment, profitability, competition

Fin431x (Ch 20&21) 4 Corporate Governance Risk Ownership structure of the corporation See four key elements evaluated by S&P on page 452.

Fin431x (Ch 20&21) 5 Financial Risk Interest rate coverage ratio: measuring the number of times interest charges are covered on a pretax basis. One is defined as EBITDA/interest expenses. See page 454. Leverage ratio – example is the ratio of total debt to EBITDA for a trailing 12-month period

Fin431x (Ch 20&21) 6 Financial Risk Cash flow: see alternative cash flow measures on page 455: company with a high percentage of assets in cash and marketable securities is in a much stronger position than a company whose primary assets are illiquid real estate. Net assets: may refer to liquidation value of a firm Working capital: the stronger the companies liquidity measure, the better it can weather a downturn in business and reduction in cash flow. – should look at different items as well.

Fin431x (Ch 20&21) 7 Case Lear Corp. (LEA) A high-yield bond

Fin431x (Ch 20&21) 8 Credit Risk Modeling Credit risk models are used to measure, monitor, and control a portfolio’s credit risk. Difficulties: 1.Credit default is a rare event 2.Types of borrowers vary widely

Fin431x (Ch 20&21) 9 Structural Models Originated from option pricing models where common stockholders can be viewed as having a call option on the value of the assets with the right being granted by the bondholders BSM – page 497. The option is triggered when the firm defaults

Fin431x (Ch 20&21) 10 Reduced-form Models Treating default as an exogenous event Model it with a Poisson process Jarrow-turnbull Model Duffie-Singleton Model

Fin431x (Ch 20&21) 11 Exercises 1.Question 4, chapter 20

Feedback: Privacy Policy Feedback
Do Not Sell My Personal Information
About project: SlidePlayer Terms of Service

© 2025 SlidePlayer.com. Inc. All rights reserved.